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IMF Revists its World Economic Outlook, Asia to Grow at 6.3 per cent

'China's growth slowdown could be faster than expected especially if
trade tensions continue, and this can trigger abrupt sell-offs in
financial and commodity markets as was the case in 2015–16'

The International Monetary Fund revised its World Economic Outlook (WEO)
forecast for the second time within a span of six months. It now
projects that the global economy will grow at 3.5 per cent in 2019 and
3.6 per cent in 2020.

In the October WEO, IMF revised its projects and said the global economy
will grow at a pace of 3.7 per cent in 2019 and 2020 citing negative
effects of tariff increases enacted in the US and China earlier in the
year along with carryover of softer momentum in the second half of 2018
and other global events such as Germany introducing new automobile fuel
emission standards, Italy’s concerns about sovereign and financial
risks, etc.

Outlook for Asia

Coming to emerging and developing Asia, IMF noted that growth will dip
from 6.5 per cent in 2018 to 6.3 per cent in 2019 and 6.4 per cent in
2020.

“Despite fiscal stimulus that offsets some of the impact of higher US
tariffs, China’s economy will slow due to the combined influence of
needed financial regulatory tightening and trade tensions with the
United States,” IMF said in a statement.

For India, the economy is poised to pick up in 2019 thanks to lower oil
prices and a slower pace of monetary tightening as inflation has started
to ease.

Concerns Related US-China Trade War
In 2018, the Chinese economy slowed down because of financial regulatory
tightening. The move was intended to check shadow banking activity and
off-budget local government investment, however, also resulted in
widening the trade dispute with the US. By the end of the year, the
situation further downgraded.

“The authorities have responded to the slowdown by limiting their
financial regulatory tightening, injecting liquidity through cuts in
bank reserve requirements, and applying fiscal stimulus, by resuming
public investment. Nevertheless, the activity may fall short of
expectations, especially if trade tensions fail to ease,” IMF’s
statement pointed out.

While on the other side, on 1st of December US-China announced a 90-day
truce on tariff increase, which the international trade body welcomed
and said could lead to ‘de-escalating trade friction’.

Having said that, the truce period ends on 1st March and the final
outcome of trade war is still anticipated until then global trade,
investment, and output will continue to remain under threat from policy
uncertainty and other ongoing trade tensions.

“China’s growth slowdown could be faster than expected especially if
trade tensions continue, and this can trigger abrupt sell-offs in
financial and commodity markets as was the case in 2015–16, ” Gita
Gopinath, Economic Counsellor and Director of Research of the
International Monetary Fund (IMF) wrote in her blog.

Additionally, failure to resolve this issue will further lead to tariff
barriers resulting in higher costs of imported intermediate and capital
goods and higher final goods prices for consumers.https://www.geezgo.com/sps/52698